1. Field of the Invention
The invention relates to an improved supply chain network and, more particularly, to a supply chain network which centralizes many operations thereby yielding a supply chain that is more efficient and less costly than prior art systems.
2. Description of the Related Art
Manufacturers (hereinafter generally referred to as “customers”) and suppliers of products or services (hereinafter collectively referred to as “products”) are continuously interested in reducing costs. Materials make up a large fraction of total costs as do supply chain management costs. A supply chain is any and all activities associated with defining, designing, producing, receiving, monitoring, storing and using the components and sub-components used in manufacturing a product. Manufacturers/customers often find themselves paying higher prices, being short of products in times of high demand, forecasting needs inaccurately, and creating slow moving inventories because these manufacturers do not have the expertise, resources or time to manage their supply chain properly.
Direct materials account for between 35% to 70% of a manufacturer's total costs and often constitute the largest expense category. Lowering material costs significantly improves profitability. For example, a company in the business of contract electronics manufacturing could improve overall profitability by 20% to 30% from only a 1% drop in direct material prices.
Supply chain costs also constitute a significant fraction of a manufacturer's total expenditures. For example, supply chain costs include: planning, purchasing, inbound freight, receiving, inventory management and carrying costs, supplier monitoring, measurement, management, and the payment of invoices. These costs can account for between 5% and 25% of corporate expenditures. That estimate applies to both the manufacture and supply of the manufacturer's components. For example a 20% reduction in supply chain costs would significantly improve, and in many cases could double, the profits of a given manufacturer.
A typical prior art supply chain is shown in FIG. 1. Customers generally have two methods for procuring components and sub-components using prior art supply chains. As shown in prior art supply chain 50, large original equipment manufacturers (“OEMs”), contract electronics manufacturers (“CEMs”—not shown) or customers 52 (of components) will typically buy directly from a component manufacturer or supplier 56. This technique is known in the industry as “buying direct”. Large customer 52 places an order with supplier 56 each time a part is needed. Supplier 56 gives the products to a carrier 58 who, in turn, delivers the ordered products to large customer 52.
Small customers 54 typically make purchases through a third party distributor or agent 60. Distributor 60 purchases parts from supplier 56 who gives the products to a carrier 62 who brings the products to distributor 60. Distributor 60 then transfers the products to another carrier 64 who delivers the products to small customers 54. Other types of third party distributors use an electronic means to hold auctions for components. However, as the time involved in attending the electronic auction is lengthy, such services are rarely used except for one-time, or spot component requirements.
Many of the parties involved are not pleased with prior art supply chains. Known supply chain networks commonly yield missed shipments and discontinuity of component supply to a customer. These deficiencies particularly frustrate customers in times of “allocation” where there are shortages of key components. This causes delays in end product shipments and corresponding loss of revenues and profits.
Component suppliers 56 in particular are frustrated with prior art supply chains. Changes in market conditions for these entities' end products yield very volatile manufacturing schedules, resulting in inefficient factory usage and higher costs. Component suppliers 56 have also invested heavily in MRP (Materials Resource Planning) and ERP (Enterprise Resource Planning) systems to try to incrementally improve factory loading and inventory levels.
In these systems, component suppliers plan to provide parts based upon production plans generated by a customer factory or series of factories using the same system. However, these systems often produce disappointing results because they operate only within each individual component supplier and often only process production plans on a weekly basis. As such, these systems typically react slowly when compared with the rate of order fluctuations and are unable to detect excess inventories located in non-primary warehouses thereby resulting in excess parts being ordered.
To solve some of these problems, some larger manufacturing customers 52 require that suppliers 56 maintain dedicated on-site or local consignment inventories of the products these manufacturing customers 52 require. However, maintaining these additional inventory locations is very costly and difficult to control. The additional inventories also create further inefficiencies in the use or production capacity and total inventory.
Additionally, customers 54 are often serviced through distributors 60 who require 7% to 35% gross margin points to manage and cover inventory handling costs in addition to the supply chain costs already borne by these customers 54. These distributor margins reduce supplier's 56 profitability on small and medium sized customers 54 and produce a tension between suppliers 56 and distributors 60 on how or whether to limit distributor margins. Furthermore, distribution orders cost more to administer with special processes and systems required to manage “ship-and-debit” pricing and stock rotations. Finally, selling and servicing customers costs between 5% and 10% of sales—excluding marketing and advertising costs. Suppliers 56 have difficulty finding a pay-back for these investments.
There are payment problems in prior art supply chains as well. In many prior art systems, products are sold to customers 52, 54 with payment terms that are ignored. For example, the customers receive the products from suppliers 56 and then have 30 days from delivery to provide payment to suppliers 56. Customers frequently take advantage of this payment term and not pay until after the term has expired, for example, 45 days from delivery. Customers find this arrangement more desirable than taking a loan to cover the costs of the products and paying the loan on time. By delaying payment, the customers' balance sheets indicate a payable instead of a loan; a more attractive view for investors. It is generally not worthwhile for suppliers 56 to complain about a 15 day discrepancy but the suppliers 56 lose money during those 15 days. To solve this problem, suppliers 56 create a de facto interest for money expected to be lost due to late payment by charging customers more for parts. This de facto interest is clearly undesirable for customers 52, 54.
Moreover, toward the end of accounting periods, suppliers 56 are frequently desirous to ship products ahead of schedule to improve the appearance of respective balance sheets. Distributors 60 for the suppliers 56 are aware of this desire and consequently require suppliers 56 to offer discounts to receive goods before scheduled shipments. These extra discounts required by distributors 60 present yet another disadvantage of known supply chains networks.
Thus, there exists a need in the art for a supply chain architecture which can remove the inefficiencies referenced above and thereby reduce the losses incurred by both customers and suppliers in the sale and distribution of products.